Foreign businessman wins permission to appeal for indefinite leave to remain in tax discrepancy case over ‘blatant error of law’

A judge in the Court of Session ruled that the Upper Tribunal “erred in law” in failing to consider a report prepared by a forensic accountant which explained that the discrepancies in the petitioner’s declarations of income to the Home Secretary and to HMRC for the two years in question were because the tax year and the accountancy period for the business were different.

‘Tax discrepancies’

Lord Arthurson heard that the petitioner Arinze Nwokolo, who arrived in the UK in 2006 as a student and was subsequently granted periods of leave to remain, operated a business under a “point-based system” which required him to declare his income in order to obtain points.

Having obtained the necessary points, and obtaining continuing leave to remain as a result, the petitioner reached a point in time at which he could apply for indefinite leave to remain on the basis of his length of residency in the United Kingdom, namely 10 years.

But the respondent refused the petitioner’s application for indefinite leave to remain by letter of 27 June 2017, in terms of Immigration Rule 322(5).

The petitioner appealed against that decision to the First-tier Tribunal (FtT), but by decision dated 25 January 2018 that appeal was dismissed and permission to appeal was later refused by another FtT judge.

The petitioner’s application to the Upper Tribunal for permission to appeal was refused by decision dated 15 May 2018, following which the petitioner sought permission from the Court of Session.

The court was told that the Home Office refused the petitioner’s application due to discrepancies in his declarations of income to the respondent in respect of the applications for leave to remain and in his subsequent tax returns to HMRC in the tax years 2012/13 and 2013/14, which over the two-year period amounted to some £10,913.

‘No deception’

The primary challenge advanced on behalf of the petitioner was that, whereas in the generality the tax year runs from 6 April in one year to 5 April the following year, the accountancy period for the petitioner’s business ran from 1 July in one year to 30 June the following year.

Accordingly, if any income or loss was incurred in the period from 6 April in the first year to 30 June that year, figures related to that income or loss would in all likelihood emerge in a tax return but not necessarily in the petitioner’s business accounts.

The chronological variation between the tax year and the business year meant that there would always be a discrepancy in the figures disclosed to the Secretary of State on the one hand and to HMRC on the other hand.

A forensic accountancy report prepared by Chadwick-Thompson Accountancy Limited for the two tax years in question had been prepared following the decision of the FtT and accordingly was not before that tribunal when it made its decision, although business bank statements and accounts were, but the report was before the Upper Tribunal when it refused permission to appeal.

The FtT in its decision letter stated that the appellant had failed to provide a “reasonable or proper explanation for the discrepancy”, adding that the bank statements were of “limited assistance” in the absence of further explanation.

However, counsel submitted that as this was a tax discrepancy case, the FtT “should have understood the distinction” which required to be drawn between an accountancy period and a tax year.

It was argued that a “proper engagement” with the material before it ought to have led the FtT to conclude that: there was “no actual discrepancy”; there was therefore “no deception”; and that the petitioner in these circumstances was “bound to succeed”.

The Upper Tribunal, in its decision refusing permission to appeal appeared in turn not to have engaged at all with the material which was before the FtT, and, even more significantly, with the forensic accountancy report.

It was also submitted that the FtT had erroneously approached the question of onus, determining in terms that the petitioner had failed to discharge an onus of proof, whereas the correct position in law was that the onus to prove conduct such as deception, as alleged here, was a matter for the respondent to discharge.

‘Blatant error’

Reducing the decision, the judge held that both the FtT and UT had erred.

In a written opinion, Lord Arthurson said: “The forensic accountancy report from Chadwick-Thompson did not exist at the time that the FtT made its determination on 25 January 2018. It was instructed after that determination and prepared in March 2018. The FtT cannot be faulted for not considering matters arising in that report.

“The Upper Tribunal, in its consideration of the petitioner’s application for permission to appeal, however, did have the Chadwick-Thompson report before it in the process leading to its own determination to refuse permission on 15 May 2018.

“On my reading of the reasons provided by the Upper Tribunal in support of that refusal, there appears to be no engagement on the part of the Upper Tribunal whatsoever with the terms and import of that forensic report insofar as it appeared to reconcile the figures referred to in the business accountancy period and relevant tax years.

“I have reached the view that this can reasonably be characterised as an arguably material omission on the part of the Upper Tribunal in its consideration of the petitioner’s case.

“It further appears to me on the face of the material which has been summarised as being available to the FtT, that the nuts and bolts of the financial position of the petitioner’s business were in terms available to the FtT.

“On the raw financial material before the FtT, there was, we now know due to the terms of the forensic accountancy report, no material discrepancy at all, and of course only in the event of a valid finding of discrepancy can one proceed to find, by way of inference, any dishonesty established.

“Perhaps more fundamentally,” he continued, “the FtT as a specialist tribunal ought to have been able to grasp the relatively straightforward distinction between the period of a business accountancy year and the tax year, and in turn to appreciate the potential import thereof in this case.

“That does not appear, on the face of the material considered before this court, to have been done by the FtT, and, a fortiori, standing the availability to it of the said forensic accountancy report it certainly has not been a matter apparently even engaged in, let alone grappled with, by the Upper Tribunal.”

Counsel for the respondent accepted that the FtT and the Upper Tribunal had erred in law on the matter of onus, but contended that the outcome of the petitioner’s application would inevitably have been the same.

The judge observed that while it was correct that the question of onus may have been neither here nor there in the mind of the decision maker at the FtT, the error of law embarked upon was on any view a “blatant error”.

Lord Arthurson concluded: “I prefer to conclude that it cannot be said with confidence that the disposal would inevitably have been the same had a proper approach to onus been observed in this case.

“I accordingly in these circumstances hold that grounds one and three, as advanced before the Upper Tribunal in respect of the petitioner’s application for permission to appeal, must be considered to be at least arguable grounds in respect of error of law.

“Having reached that view, the remedy of reduction consequently follows and I propose to grant that relief to the petitioner in the interlocutor accompanying this decision.”